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Cutting Fat: The Automotive Industry, Government Assistance, and Corporate Welfare

The Conservative government released its 2014 budget this week and, much to the joy of North American automotive manufacturers operating in Canada, it turns out that free trade is actually just “free trade.”

Finance Minister Jim Flaherty announced Ottawa’s plans to double the amount available via the Automotive Innovation fund from $500 million to $1 billion, presumably assuaging anxieties over Canada’s to-be-negotiated trade agreement with Asian auto-powerhouse South Korea. However, it is counterintuitive to expand government assistance to the automotive industry while also pursuing free trade with a country that hosts competing manufacturers. The decision is not surprising, though, considering the amount of legislation, policy, and regulations that exist only to contradict one another. Instead, the Canadian government should negotiate lowering tariff walls and reducing anti-competitive policy both domestically and internationally.

More concerning are comments made recently by Chrysler Group chair Sergio Marchionne, after discussions with Prime Minister Harper and Ontario Premier Kathleen Wynne: “I think we’ve got all the makings of a potentially successful transaction. You need to let the parties work diligently at carving out what is best suited for the Canadian government, the Province of Ontario, and Fiat-Chrysler.”

In any other industry, Marchionne’s comments would be disquieting. In fact, to some, Marchionne’s comments are disquieting. The implicit guarantee between North America’s automotive industry and the Canadian and American governments is akin to crony-capitalism and those who suffer are consumers.

Most business ventures succeed without direct government intervention, contrary to Marchionne’s assertion that state subsidies are part of the “makings” of commerce. Indeed, Marchionne is holding hostage consumers, in addition to his own employees, while he gerrymanders the political environment toward favouring Chrysler Group’s “potentially successful transaction.” He also had the audacity to discuss opportunities that are more attractive for Chrysler in Brazil and Mexico, indicating that the decision to invest in Canada has less to do with economics, and more to do with political handouts. Fortunately, though, Marchionne asserted that he does not expect Canada to provide the same level of support. How very kind of him to relieve Canadian taxpayers, if only slightly, of supporting an industry that requires constant government assistance just to consider staying their operations in North America.

It is time for Canadians to detach themselves from the automotive industry. The blatant contradiction between Marchionne’s assertion that North American pride is a key to the industry’s success and the looming threat of relocating to other countries where government assistance is more rewarding has gone too far. Marchionne and the executives at Ford and General Motors should decide to invest in Canada on their own merits and if they choose not to, then that is fine. Life will go on. “Securing” their investment using political incentives, however, reinforces the expectation of taxpayer support and awards the automotive industry undue influence over Canada and Ontario’s economic future.

It is time to end corporate welfare. Cutting fat in Canada’s automotive industry is a good place to start.

Shaun Fantauzzo is a policy analyst at the Atlantic Institute for Market Studies